You’re applying for an SBA loan. The conversation is going well, your business case is solid, and you have a great relationship with your lender. Then you review the Personal Financial Statement (PFS), and something shifts.
We sat down with Brandon Horvath, one of our SBA lenders here at First Financial Bank, to discuss why so many first-time borrowers freeze up at this moment, and why the instinct to hold back is almost always the wrong one. Brandon has been working with small business owners since 2014, and he sees this anxiety come up on the regular.
The reasons, he says, usually come down to two things. Privacy (“most people are not used to putting this type of information on one piece of paper”) and judgment (“the fear of being judged or ‘disqualified’ due to what their financial picture may look like”).
“Many borrowers think it’s a ‘gotcha’ document, when in reality it’s a context document. It helps tell the full financial story behind the borrower.”
That word “context” is doing all the work. The PFS isn’t a trap door. It’s the document where your story gets told.
What’s the PFS for?
Brandon’s response: “In reality, it is used to understand global cash flow, evaluate risk across the full financial picture, and identify strengths that may not show up in the business alone.”
Your business financials cover one part of the picture, and the PFS covers the rest. Put them together, and you’ve answered a question that lenders are always trying to answer.
If the business hits a rough patch, what does the borrower bring to the table?
The way Brandon reframes it for borrowers is imperative: “This isn’t a test you can fail. It is simply an opportunity to show strengths that do not show up anywhere else in your application.”
A couple of practical notes: if you own 20% or more of the business, you’ll need to file a PFS. In most SBA loans, you’re also expected to personally guarantee the loan. The PFS isn’t there to expose you. It’s the document that holds up that guarantee by showing the lender what you can bring.
So, what about borrowers who think they should disclose less?
This one comes up a lot. The thinking goes: show too many assets, and the bank asks for more collateral. Show too much, and they’ll start digging for problems.
Brandon hits this head-on: “I hear this ‘fear’ all too often. In all honesty, this is backward thinking. Banks, especially in SBA lending, are not looking to over-collateralize deals unnecessarily. The SBA programs are specifically designed to support cash flow lending and not asset-based lending.”
Put another way, SBA underwriting cares first about whether your business can service the debt from its cash flow. Collateral is a secondary support, not the lead. Strong personal liquidity on a PFS doesn’t open the door to more collateral demands. It does the opposite. “Stronger personal liquidity and net worth often reduce perceived risk. When the risk decreases, flexibility increases.”
And equally important: “Hiding assets does not protect you. It just makes the picture look weaker than it is. Transparency gives the lender confidence. Lack of transparency raises questions.”
Transparency works both ways.
It’s worth pausing on this part for a minute because it’s the part most borrowers underestimate. A loan application isn’t a one-directional interrogation. Both sides are reading each other from the first conversation. “Two-way transparency builds two-way trust in a bank/borrower relationship,” Brandon says. “When there is clear transparency, both sides feel there is a sense of integrity, competence, and control over the project.”
He shared an example of a borrower who disclosed something uncomfortable on their own, before the bank would have ever found it. The whole tone of the deal shifted. “Instead of raising concerns, it actually built credibility.”
The practical payoff is real when a PFS comes in thoroughly and clean; underwriting typically moves more smoothly. Fewer back-and-forth requests. Faster decisions. “It is not about being perfect,” Brandon says. “It is about being clear and honest.”
That matches what we hear from small business owners we’ve worked with over our many years. The deals that close cleanest are the ones where everything was on the table from the first meeting.
Where does the PFS show up in the Four C’s?
Please think about a framework called the Four C’s: Cash, Credit, Collateral, and Capacity.
Your PFS touches all four.
Cash is the overall cash flow. Not just what your business produces, but the full “money-in/ money-out” picture. The business is your primary source of repayment. The PFS is what tells the lender about a secondary one.
Credit is your track record. Paired with credit reports and tax returns, the PFS helps the underwriter answer the question of how well you’ve handled your obligations over time. This is largely about discipline.
Collateral isn’t about pledging everything you own. The PFS shows what’s available, so the lender can structure the deal correctly and avoid surprises.
Capacity is where personal liquidity does the most visible work. Can you support the business if needed?
Brandon’s summary captures all four at once: “Strong personal liquidity and net worth are major positives in SBA underwriting. These two things add to capacity (the ability to support the business if needed) and collateral support (secondary sources of collateral) and showcase financial discipline. From a practical standpoint, this can improve the project’s overall risk rating, make the deal easier to approve, and, in some cases, create flexibility in structure or terms.”
What about debt? Is showing debt on the PFS a problem?
Short answer: no.
Longer answer from Brandon: “Debt itself is not a red flag. However, unmanaged or excessive debt is.”
Responsible leverage is debt that fits the income or cash flow supporting it, with assets that justify the liabilities and a reasonable debt-to-net worth ratio. Having debt won’t sink you. As Brandon puts it: “In many cases, seeing a borrower successfully manage multiple obligations actually builds confidence in their ability to handle new debt.”
